Teen settles in online stock fraud case

The Securities and Exchange Commission settles a civil fraud suit against a 15-year-old boy who allegedly used the Internet in a "pump-and-dump" stock scheme that netted profits of $272,826.

The Securities and Exchange Commission has settled a civil fraud suit against a 15-year-old boy who allegedly used the Internet in a "pump-and-dump" stock scheme that netted profits of $272,826.

According to the SEC, which has never before brought charges against a minor, the boy purchased large blocks of inexpensive microcap stocks. He then used various aliases to promote, or pump up, the stocks on message-board postings before quickly selling, or dumping, the shares for a profit.

The SEC said the youth made the first trades and postings when he was 14. In some cases, he allegedly set triggers that would automatically sell the shares at certain levels so as not to miss out on any run-ups while at school.

The Cedar Grove, N.J., teen claimed in one of his messages, which were primarily posted on Yahoo Finance, that a company trading at $2 per share would be trading at more than $20 per share "very soon," according to the SEC. Other postings claimed that a stock would be the "next stock to gain 1,000 percent" and was "the most undervalued stock ever."

In at least 11 different instances between Aug. 23, 1999, and Feb. 4, 2000, the pumped-up shares rose in value. In some cases the stocks reached a 52-week high for both volume and price, at which point the boy dumped the shares for profits of between $11,000 and $74,000.

Without admitting or denying the charges, the minor agreed to follow an administrative cease-and-desist order and to pay back his illegal profits of $272,826, together with prejudgment interest of $12,174, for a total of $285,000.

Ronald Long, administrator of the SEC's Philadelphia District Office, urged investors "to be highly skeptical of any advice they receive from the Internet. People should do thorough research before making investment decisions and verify all information before acting on it."

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